FHA 203(k) Renovation Loan
An FHA 203(k) loan allows qualified buyers or homeowners to finance a home’s purchase or refinance and eligible renovation costs with one mortgage. The repair funds are placed in an escrow account and released as the work is completed. This program can make it easier to purchase a home that needs repairs or improve a home you already own.
Frequently Asked Questions
What are the two types of FHA 203(k) loans?
The program offers two options:
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Limited 203(k): Designed for minor remodeling and nonstructural repairs, with up to $75,000 available for eligible rehabilitation expenses.
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Standard 203(k): Designed for major renovations, structural work and larger projects. Eligible rehabilitation costs must generally be at least $5,000, and the total mortgage must remain within the applicable FHA loan limit.
What improvements can be financed?
Eligible improvements may include roofing, flooring, kitchens, bathrooms, plumbing, electrical systems, heating and air conditioning, accessibility improvements, structural alterations and the correction of health or safety issues.
Can I use a 203(k) loan to purchase a fixer-upper?
Yes. A 203(k) loan can combine the home’s purchase price and eligible renovation expenses into one FHA-insured mortgage.
Can I use it to renovate a home I already own?
Yes. Eligible homeowners may refinance their existing mortgage and include qualified renovation expenses in the new loan.
Do I need a 203(k) consultant?
A HUD-approved 203(k) consultant is required for a Standard 203(k) loan. A consultant is generally optional for a Limited 203(k) loan, although the lender may require one depending on the project.
How are contractors paid?
Renovation funds are held in an escrow account and distributed through draw payments as work is completed and approved. Standard projects generally involve inspections and certifications before funds are released.
Does the home need an appraisal?
Yes. The appraisal generally considers the property’s expected value after the planned improvements have been completed.
How long do I have to complete the renovations?
The maximum rehabilitation period is generally nine months for a Limited 203(k) and 12 months for a Standard 203(k), subject to the approved project schedule and lender requirements.
What types of properties may qualify?
Eligible properties may include certain single-family homes, two- to four-unit homes, townhomes, condominium units, manufactured homes and primarily residential mixed-use properties. Property-specific restrictions may apply.
Can I use a 203(k) loan for an investment property?
The property generally must meet FHA occupancy requirements and be used as the borrower’s primary residence. Eligible two- to four-unit properties may qualify when the borrower occupies one of the units.
How do I know whether a 203(k) loan is right for me?
A 203(k) loan may be a good option when a home needs repairs and you would prefer to finance the property and renovations together. A mortgage professional can review the proposed improvements, contractor estimates, property eligibility and your financial qualifications.